I’m often amazed at how economists can make market predictions considering all the variables and data that can skew results. Your business is no different, which is why a financial audit can have an amazing impact on your overall strategic direction.If you’ve read any of my posts, you’ll see that I’m passionate about building strategy from the bottom line. Use the right financial metrics, and you can more effectively prioritize and focus your strategies.
But how do you assure those financial metrics are accurate?
Accuracy is achieved by auditing financial results, not just compiling them. Let me illustrate the difference through an example.
Audit vs. compilation
Any business, no matter what its size, has a “schedule of accounts.” All the incomes and expenses the business generates need to be entered under the proper account. Sometimes they are not.
At the end of the fiscal period, be it quarterly or year-end, when the account is compiled and translated into a financial statement, the business has a decision to make. It can trust the bookkeeper’s entries, which are called a compilation.
The business could also order an audit to check on the accuracy of the data entries, which may be required because of loan requirements in documents such as a mortgage or a working capital loan.
Sounds like an obvious choice, right? Go with the audit? You could, and perhaps you should, but most businesses don’t. They judge it to be too expensive, and trust their accountant’s compilation.
But like the economists making their long-term projections, your strategic decision-making will be influenced by the accuracy of your data. The more accurate your data, the more focused and effective your strategy will become. You’ll have more confidence in it as a leader, and that’s when the amazing things start to happen.
Photo by: red hand records
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